Question

Please from your own words and no Plagiarism and please right your answer here

you are given the following information:

       Q_s = 100 + 3P

       Q_d = 400 - 2P

From this information compute equilibrium price and quantity. Now suppose that a tax is placed on buyers so that

       Q_d = 400 - 2(P + T).

If T = 15, solve for the new equilibrium price and quantity. (Note: P is the price received by sellers and P + T is the price paid by buyers.) Compare these answers for equilibrium price and quantity with your first answers. What does this show you?

Answer 1

Qd=Qs

400-2*P = 100+3*P

300 = 5P

P = 60

Now equilibrium Q, Qd=400-2*P = 400-2*60= 400-120 = 280

For tax, T = 15,

Qd=Qs

400-2*(P+T) = 100+3*P

400-2P+2*15 = 100+3P

400-2P+30 = 100+3P

330 = 5P

P = 66

QD = 400-2*(66+15)

= 400-162 = 238

Pre tax, P = 60 and Q = 280

Post tax, P = 66 and Q = 238

So with the tax of 15, price paid by buyers is 66 and the price received by seller is 51

With the imposition of tax of 15, the equilibrium quantity reduces by 42 and price paid by buyer increases by $6 when compared with pre tax Q and price